Worker Cooperatives: Retooling the Solidarity Economy

Under the cooperative model, workers own the business, reducing injustice because they have a stake in the community and because an individual will find it hard to exploit oneself. Workers often buy into their jobs (upfront or amortized), vote on major decisions in general assemblies or committees, and even voluntarily donate to the co-op for re-investment. Known as “workplace democracy,” this model of authentic self-determination renders state action superfluous.

The flagship Mondragon Corporation, the seventh largest company in Spain by asset turnover (and a federation of hundreds of cooperatives) is a controversial but impressive proof-of-concept that worker cooperatives can do everything the vampiric large-scale, capital intensive firms can, but better.

Today, worker co-ops have immense economic impact but unrecognized political clout. The cooperative is a sleeping giant: There are at least 30,000 U.S. cooperatives with at least $3T in assets, $654B in annual revenues, $75B in wages and benefits and 875,000 jobs directly created. [1] For comparison, Apple had $156.5B in revenues for the 2012 fiscal year. Rigorous studies on the viability of the cooperative model can be read on the website of the Quebec International Summit of Cooperatives here.

The above figures don’t account for cooperatives outside of the US, either. In Britain, Italy, Sweden and Germany, cooperatives are a sizable pillar of the economy and partially account for the high social development statistics in these nations. Reflecting these egalitarian values, a 2003 federation of worker cooperatives drafted the World Declaration on Cooperative Worker Ownership, a.k.a. the Oslo Declaration, a sentiment based on solidarity and inclusiveness rather than the psychopathic self-interest that characterizes the corporation-state.

The Evolutionary Cosmology of Economic Self-Interest

Cooperative behavior does not necessarily violate the idea of homo economicus, rational self-interest and utility maximization—people simply derive utility from helping others and seeing that justice is served. The idea of rational self-interest holds, but mainstream economists’ standard utility functions fail to account for the hard-to-quantify pleasure of mutual aid.

Taylorist “Scientific Management” and the competitive corporate model gained popularity in light of Charles Darwin’s Origin of Species, which described nature as competitive, cannibalistic and callous.

Darwin’s less-read but equally important treatise The Descent of Man (1871) describes pro-social, synergistic and cooperative behaviors within and between species. Scientist and anarchist philosopher Peter Kropotkin, inspired, elaborated on this friendly dynamic in his 1902 book Mutual Aid: A Factor in Evolution.

The hegemonic ideology of selfishness, competitive ambition and that “greed is good” are inaccurate and destructive. Greed is taking more than you need at the expense of others – it is always immoral (and rightfully one of the seven deadly sins in most of the parable-anthologies of religion). Coincidentally, economics students behave more selfishly than other students in experiments. [2] And, to boot, they’re more selfish than other majors going in to college, meaning they self-select.

“Leafing through Forbes or Fortune [magazine]s is like reading the operating manual of a strangely sanctimonious pirate ship.“

– Adam Gopnik, The New Yorker

Economics and business school programs inculcate vampiric values with hegemonic, corporation-statist curriculum. Economics today serves as a moral and empirical justification for capitalism as it currently exists (though not in all departments, only ones like Wharton and the Harvard Business School that tend to place their students in prestigious positions like at J.P. Morgan, Deloitte, Bank for International Settlements and the UN).

Hilariously, CEOs think they’re doing a service to society! In fact, some believe they’re “doing God’s work,” like Goldman Sachs’ humble friar Lloyd Blankfein, who pays himself $68M a year of stolen wealth.

Really, claiming that executives are necessary to create jobs implies that monopolized capital is the only way capital can be deployed. In reality, factories run quite well without bosses. Argentinian workers successfully occupied and began producing in their old factories after capitalists had shut them down, as detailed in the documentary The Take.

The beauty of the worker’s co-op is that it merges the union with the management; there is no energy or time wasted on antagonism, sabotage and bargaining. Workers vote on salaries, working hours, conditions — everything.

Co-ops are often more efficient because middle managers, foremen and taskmasters are unnecessary; nobody needs to crack the whip to coerce productivity because workers have a strong incentive to add value as they share directly in the profits (and losses, which are actively mitigated). There is a strong disincentive to destroy the natural resources workers rely upon because they are embedded in the community and cannot just move operations to East Asia or Latin America when the “job’s done.”

The Mondragon Corporation, the 7th largest company in Spain, is currently the apex of capital-intensive, highly specialized worker’s co-operatives. In the year 2010, against the backdrop of the ongoing global financial crisis, the competitive advantage and efficiency gains were clearly evident in the firm’s strong financial figures: €33B in assets, €14B total income and €178M “profit” in 2010 (triple the “profit” of 2009). [3]Video Report.

The co-op does everything from manufacturing computer chips, auto parts, renewable energy machinery and kitchen appliances to acting as a bank, insurance, consulting, architecture and engineering firm. Mondragon runs petrol stations, retail outlets, supermarkets and even a university. Over half of the company’s products are for international export. Those that believe worker’s co-ops only work on a local, small-scale should study Mondragon.

The “corporation” is truly a federation of many worker-owned businesses, comprised of over 83,000 employee-owners with subsidiaries in places like Brazil and China. The company is based in the town of Mondragon in the Basque region (population 23,000) where there is reportedly neither poverty nor opulence. Almost everyone has healthy food, comfortable houses and modern conveniences. There are no mansions, Ferraris or Armani suits, though. There is, however, a convivial, joyful sense of community trust and solidarity because workers own the full product of their labor, nobody lives opulently while others are left in the cold – in other words, justice.

Mondragon’s early prototype was borne out of the Spanish Civil War period (1936-38), when socialists and anarchists warred with Franco’s fascists. The philosophy at work in Mondragon is compatible with libertarian socialism or market anarchism. Unlike state socialism, free association reigns and there is no place for government violence.

“Contrary to what some advocates of top-down management say, this worker-centered focus hasn’t been an obstacle to growth. Founded in 1956 by Father Don Jose Arizmendi, a Basque Catholic priest, the Mondragón cooperatives today […] employ more than 100,000 worker/owners and in 2007 generated revenues of more than $24 billion.

The central importance of workers permeates every aspect of the Mondragón Cooperatives. Even though the MCC businesses are affected by the global financial crisis, there is no unemployment within the MCC businesses. People are moved around to other jobs, or hours are cut without cutting pay. The wages for unworked hours are to be repaid through extra hours worked later in the year.” [4]

Mondragon has perfected E.F. Schumacher’s Principle of Subsidiarity, striking the appropriate balance between order and autonomy. In a large bureaucracy, efficiencies are shaded and dispersed – not under this model. Each of the over 285 subunits keep their own balance sheets. Mondragon offers budding entrepreneurs training and funding, helping hundreds of new companies form. [5]

Upper management makes 6 times the salary of workers at most. Compare this figure to the 300:1 average in the U.S. Finally, the mode of production is the highest manifestation of democracy: one worker, one vote. They meet annually in a general assembly and coordinate social services and business plans. Mondragon is doing a lot right.

The most important aspect of Mondragon’s model, though, is not how efficient or profitable the company is, but the quality of life for the worker-owners. The cooperative federation guarantees pensions, healthcare, and education—explaining the absence of poverty in the city of Mondragon itself.

This system is rooted in a basic idea: treating workers like dignified human beings leads to productivity gains. Giving labor direct incentives, profit sharing and periodic goals that boost solidarity result in profit. These methods are evidenced also by Jack Stack’s miraculous turnaround of the Harvester tractor company, resulting in 10 times productivity gains just by rallying feelings of solidarity in the workers. [6]

Emerging Cooperatives

For Yes! Magazine, Annie McShiras reported on the Brooklyn-based worker’s cooperative, Beyond Care, a childcare business and a part of the Solidarity Economy Network of collaborative enterprises in New York. Co-ops like Beyond Care bring together independent contractors to leverage clout, pool capital, exchange expertise and serve as social support systems for one another.

There are 68 other co-ops in the New York area listed in the NYC Solidarity Economy Mapping Project. The international propagation of worker’s co-ops reflects changing views about the economy; one based on mutual aid, justice and human happiness instead of lifeless, arbitrary and abstract monetary value.

Yes! Magazine has described several other emerging co-ops. [7] Cleveland’s Evergreen Cooperative Laundry is one of them, which built a LEED-certified $6M facility in a city with crumbling infrastructure and high unemployment. The laundry is owned by its 50 employees. They seek to serve “anchor institutions” like the Cleveland Clinic and various universities. The laundry even solicited startup capital from them, instead of relying on financing from an investment bank that would demand unfavorable working conditions and tax breaks (not that tax breaks are bad in isolation, but they’re bad when they’re preferentially given to large corporations and nobody else).

The most revolutionary thing one can do is grow their own food. Likewise, large-scale urban agriculture co-ops like Evergreen City Growers are the backbone of radical independence, sustainability, health and justice.

Evergreen is a year-round hydroponic operation capable of producing 3 million heads of lettuce and 1 million pounds of basil per year (on the labor of only 50 people). Ohio spends $7B shipping food from places like California and Hawai’i; the health and petroleum savings are considerable.

This project is similar to many others seeking to alleviate the “Food Island” crisis of the inner-city, similar to the Growing Power project based in Minneapolis and spreading throughout the country. Co-ops also tend to be Green-minded, like Ohio Cooperative Solar, which installs solar panels.

These co-ops needed startup capital and banks don’t like unconventional models. So they did it themselves. The Evergreen Cooperative Development Fund provided seed financing to worker’s co-ops in the Cleveland area and in turn each co-op dedicates 10% of profits to the fund to expand the co-operative network. It is very much like Mondragon’s CajaLaboral credit union. The key to any hub of cooperative activity is financing, which is why credit unions are so vital.

Worker’s co-ops also favor local currencies that retain and amplify wealth within the community. These currencies also defend against hyperinflation, deflation and the paradox of thrift whenever the cartelized Federal Reserve credit system decides to simultaneously rob the people and destroy their economy.

Toward A Just Mode of Production

The problem with Taylorist scientific management is that it fails to account for that which can’t be quantified: human dignity among them. Productivity can be boosted by treating people with respect, setting small goals and giving workers enough information to monitor the company’s finances. Management theory often fails to realize that worker happiness fuels the engine of production; even if the worker has the most advanced tools ever, it is all for naught if they recalcitrantly drag their feet because they feel oppressed, micro-managed and degraded.

There are no principal-agent dilemmas or tensions within the organizational structure of worker cooperatives. The worker-boss relationship is a vestige of feudalism, sharecropping and slavery because it rests upon coercion rooted in the desperation of the working class.

Labor has been expropriated and systematically emasculated by states to benefit the elite ownership class. Capitalists argue that labor has the freedom to turn down employment and go elsewhere, but this is not an option when one has been born into poverty. Employers offer the same deal and the only alternative is to starve.

The fact that there is such a thing as a permanently impoverished working class and a fixed wealthy ownership class (who need not work) betrays a seriously unnatural distribution of resources and responsibility.

Let’s break out the physics metaphors: Nature abhors a vacuum. Nature also equalizes temperature and balances particle concentration (which is why electronics work) — the concentration of wealth and power in the hands of the few conflicts with immutable natural law. The current power asymmetric is thermodynamically unsustainable. The stored potential energy will again become kinetic in the form of upheaval.

Worker cooperatives alleviate the pressure (increase conductance) by opening a gap in the membrane between the proletariat and bourgeoisie. Violent revolution is not wise, because states get repressive when they feel threatened and time is on the side of the masses. For fear of sounding reformist, however, it is incumbent upon all of those with creative powers to tilt full-throttle into the task of disseminating revolutionary ideas, means of production/consumption and disruptive technologies to expedite the shift, because a lot of people are suffering.

The current global imbalance would not have emerged if not for the hegemony of corporate power rooted in state violence. In the case of worker cooperatives, efficiency, order and profitability need not be sacrificed for social justice. These ends are not merely compatible, they are synergistic. As Pierre-Joseph Proudhon wrote, “Liberty is not the daughter but the mother of order.”

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Post Script: A Rebuttal to Communists

Communists often consider worker cooperatives vulgar because cooperatives function within the market. They’re not perfectly horizontal and don’t provide according to one’s need all the time. Some disillusioned anarchists, too, recognize the problems with very large cooperatives like Mondragon, which increasingly operate like multinational corporations, employing foreign labor and pursuing expansive growth.

Indeed, cooperatives are not a cure-all for state capitalism. But they’re damn better than the master-slave relationship entailed in capitalist enterprises.

“[The cooperative] coffee shop will still be existing within a capitalist marketplace, and so will still be subjected to competition and the whims of the market.

So while their boss may not cut Joe’s hours, if market forces dictate it they will have to cut their own hours themselves.”

The marketplace is risky. If you don’t want to take risk, grow your own food and live off the grid. At least it’s the workers who decide to cut back, rather than executives, investment bankers and extractive shareholders who decide they want to a higher dividend and will cut back on safety equipment, pensions or insurance benefits.

Cooperatives never promised to do away with fluctuations in the market, they merely offer an alternative to the master-slave relationship. Co-ops don’t throw discipline, sometimes draconian survival measures, out the window. Cooperatives need to be smart, by diversifying, assuring access to their own capital pool and investing in agriculture so that worst case senario, nobody goes hungry. There’s always work to be done in the soil.

“Facing going out of business, the co-op members either internalise the capitalist boss, and cut their own wages, conditions or jobs,1 Or they go bust.”

Prices fluctuate (even Lenin, in his New Economic Policy, embraced the price mechanism). Technologies become obsolete. These are the risks of marketplace production.

But isn’t it better to pool risk with your community rather than a capitalist, who enjoys the payoff but both he and the labors share in the losses when the factory must be sold off? The workers would be unemployed, but the capitalist likely has assets elsewhere, so really the workers get screwed either way. Cooperatives are not a remedy for economic risk. And risk will always persist — even if we become primitivists who grow our own everything, there are bad harvests. But at least in a co-op there’s upside potential shared by the laborers.

“Finally, the co-operative picture shows money (wages) being distributed equally to all the workers. The IWW aims for the abolition of wage labour. And if the idea is that after a revolution everyone will have to keep working and just all earn the same amount of money than actually this is not a socialist society at all but will actually be a form of dysfunctional capitalism.”

Socialist opposition to money isn’t realistic, because, for all the evil done in its name, media of exchange are key to economic specialization (and will continue to be until post-scarcity and the singularity are upon us). The central problem with capitalism is that the worker does not receive the full value of her labor product. How will a collectivized production system ensure that one is paid their due (a.k.a, justice)? The case is adroitly outlined by anarchist Benjamin Tucker, in “Should Labor Be Paid or Not?”

In No. 121 of Liberty, criticising an attempt of Kropotkine to identify Communism and Individualism, I charged him with ignoring the real question whether Communism will permit the individual to labor independently, own tools, sell his labor or his products, and buy the labor or products of others. In Herr Most’s eyes this is so outrageous that, in reprinting it, he puts the words the labor of others in large black type. Most being a Communist, he must, to be consistent, object to the purchase and sale of anything whatever; but why he should particularly object to the purchase and sale of labor is more than I can understand. Really, in the last analysis, labor is the only thing that has any title to be bought or sold. Is there any just basis of price except cost? And is there anything that costs except labor or suffering (another name for labor)?

Labor should be paid! Horrible, isn’t it? Why, I thought that the fact that it is not paid was the whole grievance. Unpaid labor has been the chief complaint of all Socialists, and that labor should get its reward has been their chief contention. Suppose I had said to Kropotkine that the real question is whether Communism will permit individuals to exchange their labor or products on their own terms. Would Herr Most have been so shocked? Would he have printed that in black type? Yet in another form I said precisely that.

[1] Dubb, S. (2012). The Big Picture: The Cleveland Evergreen Model and Community Wealth Building. Democracy Collaborative, University of Maryland.